Top CFO Tactics for Reducing Software Spend & Consolidating Systems

SaaS sprawl is real – and it is top of mind for CFOs. In a survey of finance executives in The Circle, 47% of respondents said they consolidated their software stack in the past year and another 27% said they plan to consolidate as they navigate the pressure to “do more with less”. But evaluating, buying, and implementing those systems can be inefficient. 

In a conversation with the CFO|Circle, Alyssa Filter, CFO at Tropic, and Caitlin Steel, a former CFO turned VP of Product at Leapfin, emphasized taking a proactive approach to smart software buying and consolidation. Otherwise, companies can find themselves stuck with high fixed costs and the challenge of removing platforms that are deeply embedded in their organization. 

Here are four “pro tips” that emerged from the conversation.

PRO TIP #1: Before You Buy Software, Consider This Metric to Evaluate Its Cost Efficiency

In a recent survey of executives in The Circle, 67% of respondents said the main objective of their current equity strategy is to attract and retain talent. Only 13% said its main objective is to drive performance.

Whatever your focus, the VIPs agreed that there must be a clear strategy and “why” behind equity. Equity is about potential and, in a private company, that often means ramping up to build something great and drive future growth. Make sure your equity philosophy aligns with your company’s performance metrics, values, and culture, and is reflected in your approach to total rewards.

When determining what you might spend on new software, evaluate the efficiency it will drive. When Caitlin worked as a CFO, she asked herself: Will the cost of this software save me a headcount? 

“If a software solution would cost me 50% or less than it would cost to put a person in there to perform that activity, then the purchase was worth it. Anything more than that meant that it wasn’t a great buy.” – Caitlin Steel, VP of Product, Leapfin

Now that Caitlin is in the software business, she has flipped this metric around and looks at it with a new perspective: Can our product save you 50% or more of the cost it would take for a person to perform this activity?

In a situation where multiple systems are used throughout the company for the same use case, it’s critical to consolidate those costs as you evaluate against this 50% or less metric. This can be a great way to identify potential areas of consolidation or “prove” that hiring someone for the activity is worthwhile. 

PRO TIP #2: Position Removing Systems Against Your Biggest Asset – Your People

CFO|Circle executives noted they don’t want to be the judge and jury on whether a team should or shouldn’t have a certain tool, but they often have to be a final approver for purchasing decisions. So when companies need to reduce costs across the business, it can be helpful for finance leaders to present software consolidation or removal in the context of wider operations costs. 

Some of the most obvious places companies try to cut expenses are travel and entertainment, software systems, and headcount. Rather than presenting the decision to consolidate software systems on its own, one CFO advised their peers to position it against the prospect of having to reduce headcount. This changes the conversation from something being taken away, to focusing on what is being retained – people and jobs. The tradeoff emphasizes human capital over systems. This reframing is especially helpful when employees are extremely reluctant to give up a certain software or consolidate multiple disparate systems.

PRO TIP #3: Hire a Business Analyst to Manage Software Spend and Utilization

Although it may be counterintuitive to consider hiring as a tactic for reducing costs, mature companies need people and processes to manage software spend, efficiency, and operations. As a company grows, it gets more and more difficult to make software spend management a shared responsibility across the business; it becomes an important area of focus for a dedicated business analyst.

One mistake companies make is that they wait too long to hire a business analyst for this kind of role. Bring this person on proactively to help your company avoid serious pain points, rather than waiting to hire them only when there is an urgent problem to fix.

PRO TIP #4: Put Extra Effort Into Your Initial Contracts Because They Set the Standard 

Getting the terms right on your first contract with a software provider is critical. It sets parameters for pricing and renewals that can impact your business for years. And it is much easier to set favorable initial terms than negotiating something you have already purchased. This is a place where you can get creative, noted Alyssa.

“If you feel confident that you can commit to a higher number of users, you can scale those out over time. For example, you could start with 50 users and tell your vendor you will add 10 each quarter for the rest of the year to lock in the volume discount of 80 seats on day one.” – Alyssa Filter, CFO, Tropic

Another way to negotiate a discount is to put language in your contract that prevents dynamic pricing impacts, such that if you ever reduce the number of seats, you can still keep the same price-per-seat cost. Otherwise, you might reduce the number of seats your company has with a software vendor, only to find that the price-per-seat increases, leaving you with fewer seats at the same total cost. 

Establishing clear price-per-seat provisions in your first software contract will result in more cost predictability and savings – and prevent a vendor headache down the line.

The Takeaway:

As CFOs feel pressure to “do more with less”, consolidating software systems is a huge focus. To unlock savings and efficiencies, CFOs are evaluating new software purchases against cost to hire, communicating software reductions to their teams in a broader context of tough tradeoffs, and setting clear contract terms to obtain volume discounts and protect themselves against unexpected price increases.

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